Rachel Reeves is set to splurge cash to tackle the rising cost of living, but is facing a major confrontation with businesses in her make-or-break Budget.
With the survival of Sir Keir Starmer’s government at stake, the chancellor looks set to appease backbenchers by introducing a range of measures to help Britain’s poorest – hinting she will pay for it by taxing the wealthy.
Pledging to take “the fair and necessary choices” to help bring down the spiralling cost of living, she has also committed to cutting hospital waiting lists and bringing down the national debt.
It comes hours after Ms Reeves unveiled an inflation-busting hike to the minimum wage, which will mean a pay rise for millions of workers, with the chancellor promising that those on low incomes will be “properly rewarded” for their work.
But businesses were quick to hit back, warning the move would drive unemployment and hit economic growth.
Ahead of her Budget speech on Wednesday, Ms Reeves said: “I will take the fair and necessary choices to deliver on our promise of change.
“I will not return Britain to austerity, nor will I lose control of public spending with reckless borrowing.
“I will take action to help families with the cost of living…cut hospital waiting lists…cut the national debt.
“And I will push ahead with the biggest drive for growth in a generation.”
She added: “Investment in roads, rail and energy. Investment in housing, security and defence. Investment in education, skills and training. So together, we can build a fairer, stronger and more secure Britain.”
However, despite her pledge of “fairness”, new YouGov polling revealed that six in 10 people (59 per cent) on low incomes think they are most likely to be impacted by the Budget. Meanwhile, a Focal Data poll revealed pessimism in the UK, with 73 per cent believing the country’s finances are in a bad place.
Included in the Budget will be an increase in state pension and a freeze in rail fares and prescriptions. Ms Reeves will also confirm that the 15-year freeze on fuel duty – including keeping the temporary 5p cut brought in by the Tories – will stay in place.
The chancellor is also expected to appease Labour MPs with a £3.5bn commitment to tear up the two-child child benefit cap, long blamed for keeping children in poverty.
And following the recent successful election-winning strategy pursued by the Labor Party in Australia, she also plans to couple cost-of-living measures with extra resources to cut NHS waiting times.
But with a spending black hole of at least £20bn and a need to give her a safety buffer of more than £10bn of fiscal headroom, Ms Reeves looks set to try to balance the books by targeting businesses and the wealthy.
Plans for an extension of the sugar tax on milkshakes and lattes, as well as a tourism tax on overnight hotel and holiday let stays, have already been confirmed.
She is also set to introduce a mansion tax on the most expensive properties, with speculation that capital gains tax will be increased and she will introduce a bank levy and gambling profits levy.
There will also be a pay-per-mile tax on electric vehicles, which could offset a £1.5bn subsidy she will offer for purchasing them.
However, already, business groups have indicated they are prepared to go to war with the chancellor over her measures, which they believe will destroy hopes of economic growth.
After warning Ms Reeves that they face “death by a thousand taxes” at the CBI conference on Monday, there is outrage over the hike in the minimum wage, which they argue will destroy jobs.
This includes an 8.5 per cent rise in the hourly minimum wage for 18 to 20-year-olds – to £10.85 – as well as a 4.1 per cent rise for the living wage, for those aged 21 and over, to £12.71 per hour. Meanwhile, 16 and 17-year-olds, as well as those on apprenticeships, will see an increase of 6 per cent to £8 per hour.
Anna Leach, chief economist at the Institute of Directors, warned the move would increase joblessness among young people.
She said: “The sharper increase in the youth rate is especially concerning, as it is likely to accelerate the loss of jobs among young people – at a time when nearly a million are already not in education, employment, or training.”
Already reeling from the tourism tax, Kate Nicholls, chair of UKHospitality, said the increases to minimum wage rates were “yet another cost for hospitality businesses to balance at a time when they are already being taxed out”.
The Federation of Small Businesses (FSB) pointed out that the latest Small Business Index (SBI) shows that 34 per cent say labour costs are among their three biggest barriers to growth, and 20 per cent planned to cut staff between October and December of this year.
But trade unions welcomed the move. Paul Nowak, general secretary of TUC, said the pay rise would make a “real difference to the lowest-paid” while Youth Employment UK said it was a “vital and necessary step in the government’s ongoing journey to make work pay for everyone”.
Meanwhile, the Conservatives have accused Ms Reeves of “trying to pull the wool over your eyes” with her budget plans.
Shadow chancellor, Sir Mel Stride said: “Rachel Reeves has chosen higher welfare and higher taxes, and she has chosen to send the bill to hardworking families.
“Britain deserves better than a government that mistakes recklessness for compassion and leaves those who play by the rules carrying the cost.”
